Federal finance arrangements in Canada: the challenges of fiscal imbalance and natural resource rents

Abstract

This chapter presents the key aspects of Canadian fiscal federalism with particular attention given to the treatment of natural resource rents. The case of Canada is of interest to scholars given that it is one of the oldest federations with important vertical and horizontal fiscal imbalance. The chapter is divided into three parts. The first one presents briefly the Canadian provinces in terms of their demography and economy. It then presents in some detail the key transfers in place. The second part presents the debate on fiscal imbalance that occurred in the first decade of this century. The third part focuses on three natural resource issues in Canada: the treatment of natural resource rents – earned (petroleum and gas) and dissipated (hydro rent) – in equalization; the debates around the building of pipelines; and the interaction between federal carbon taxation and provincial carbon policies (cap and trade, regulation, taxation).